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Can somebody explain to me our national debt.

Discussion in 'The Okie Corral' started by frank4570, Sep 22, 2012.

  1. frank4570

    frank4570

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    I'm more of a shoe box guy. If I make some money I put it in the shoe box. If I need something I grab some money out of the shoe box.
    So I don't really understand who it is our country has borrowed money from, or how that works when we are just making more money(I've even read that is actually an urban legend). Do we have to pay the money back at some point? Does our lender even care? Because I don't think we can pay it back. There's nothing in the shoe box.
     
    Last edited: Sep 22, 2012
  2. PaulMason

    PaulMason

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    A couple of questions first - Do you understand how finances work in a family and credit card debt, car debt, mortgage debt and how interest rates work if the family has a good credit rating or a not so good credit rating?

    http://finance.yahoo.com/news/biggest-holders-of-us-gov-t-debt.html
     
    Last edited: Sep 22, 2012

  3. certifiedfunds

    certifiedfunds Cosmopolitan Bias

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    Ok then.

    Put $1000 in a shoe box.

    Now, do it 16 billion more times.

    There you have our debt.
     
  4. LoadToadBoss

    LoadToadBoss IYAAYWOT

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    Very simply, (and I mean, VERY simply), our national debt is not like personal debt. With personal debt, a person contracts with a bank to borrow money with the promise of repayment with periodic interest. Often physical assets are pledged to secure/collateralize the debt. If the borrower fails to pay the debt (defaults) then the bank can sue to force payment or repossess pledged assets.

    With regard to national debt, the government sell bonds with the promise that the purchaser will receive periodic interest and can call for the redemption of the bond after a stated amount of time. Everyone who buys Savings Bonds has "loaned" money to the government. The major debt instrument is the Treasury Note/Bond.

    The government sells Treasury Notes and uses the money to fund the many functions of government when tax receipts to the treasury are insufficient. Individuals, corporations and foreign governments buy large quantities of Treasury notes. The government is obligated to pay periodic interest on all the notes. Payment of that interest runs in the Billions and comes from tax revenue and the sale of more bonds.

    What are the consequences if the government cannot service in interest on the debt? Depends. Certainly no one will want to buy Treasury notes if there is no guarantee of interest payment or return of initial investment. Therefore the ability of the government to fund it's activities diminishes. Taxes would need to go up dramatically or government services eliminated. Most likely the government will print more dollars to pay the interest thus increasing the money supply. More dollars in the economy means that the overall value of the dollar will drop as a percentage of the whole money supply thus creating inflation.
     
  5. GlockinNJ

    GlockinNJ

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    Stated perfectly LoadToadBoss.
     
  6. OctoberRust

    OctoberRust Anti-Federalist

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    I could be wrong, but from what I gather from our debt, it seems the creditors are playing "hot potato" with us/our debt.
     
  7. The Machinist

    The Machinist Please! Please! No more!

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    The US is bought and paid for by a private cartel of international banksters. Our debt will do nothing but go up, regardless of which stooge gets voted in this November. Eventually, as our economy completely collapses, our way of life will come to an end.

    The last president who wanted to extricate us from the grip of the banksters was assassinated.
     
  8. PaulMason

    PaulMason

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    The national debt is like personal debt - unsecured personal debt - e.g. credit card. And like personal debt, the interest rate on the national debt is based upon the lender's assessment as to the ability of the person/country's ability to pay the interest & debt. Greece's interest rate is higher then Canada's because of this lender's assessment.


    Look at what happened to Greece for an idea of what would happen.
     
    Last edited: Sep 22, 2012
  9. Z71bill

    Z71bill

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    Wrong --
     
  10. .264 magnum

    .264 magnum CLM

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    2/3 of our debt is held buy US concerns -
    The Federal Reserve
    The Social Security Trust Fund
    Pension Plans
    Insurance Companies
    A few individuals own lots of US debt - Warren Buffet is one.
    etc.

    About 1/3 is held by overseas concerns
    China, Japan and Great Britain are the biggies
    Some overseas companies and investors buy US debt as well.

    For some perspective China owns about 7.5/8% of our debt.

    With some work we will be able to pay this back. Really all we need to do is lower the annual deficit and reverse the trend line of the debt.
     
  11. .264 magnum

    .264 magnum CLM

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    What does that mean?

    Recent debts sales have gone very well.
     
  12. .264 magnum

    .264 magnum CLM

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    Wrong and embarrassing to boot!
     
  13. OctoberRust

    OctoberRust Anti-Federalist

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    But to think holding on to it and gaining substantially long term, given the system of gov't we have in place right now, is to be living in a dream land.
     
  14. series1811

    series1811 Enforcerator. CLM

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    The problem is, there is no normal life scenario to compare how we acquire this debt, how we borrow it, who we borrow it from, or how we pay it back.

    Basically, it's several complex schemes to do something very simple. That is, to create money out of thin air.

    Historically, what we are doing now, was literally done by just printing out more money. Since the creation of the Federal Reserve, it's a little more insidious.

    And, there is no plan to pay off this debt. None. Nada. And, really, why does there need to be for the people who are doing it? Everyone who is approving it, and asking for it, and benefiting from it, will be dead when the day of reckoning comes.

    I really believe that is the way they (Geitner, being one to mention specifically) think. It won't be a problem on my watch, so it's really not a problem.
     
    Last edited: Sep 22, 2012
  15. .264 magnum

    .264 magnum CLM

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    Lots and lots of professional investors, and others, across the world disagree with you.

    So you are saying Warren Buffet is living in a dream land?
     
  16. series1811

    series1811 Enforcerator. CLM

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    I'm saying Warren Buffett is making out like a bandit right now, and knows he will be dead when it becomes a problem.

    I've known too many people who think like that. Our bad luck is to have them making important decisions.

    And, speaking of Buffett, you don't have to be much of a student of human behavior, to realize that despite being very good at making financial decisions, that man has some serious personal snakes in his head.
     
    Last edited: Sep 22, 2012
  17. devildog2067

    devildog2067

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    The US borrows money by issuing bonds. A bond is simply a promise to pay. Many other organizations, from companies of all sizes to local and municipal governments, do the same.

    In your shoe-box ecosystem, say that I'm your neighbor. You know I have a steady income. I say to you "hey frank, I need some cash, if you give me $100 I'll give you this piece of paper which promises you your $100 back plus interest." That piece of paper is a bond. Since you have money in the shoe box, and it's sitting there and not doing anything, and--most important--you *believe* that I will pay the money back, you lend it to me.

    People believe that the US will pay the money back. The promise of the US government to pay is considered to be as good as money. That's why people still lend money to the US. A bit of interest on their money is better than letting it sit in the shoe box.
     
  18. devildog2067

    devildog2067

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    Ha--while I was typing a response looks like I missed a bunch of posts. Reading now.
     
  19. devildog2067

    devildog2067

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    :upeyes:
     
  20. kiole

    kiole

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    From what I understand given the current rates of return and interest rates are debt is a problem but not economic collapse problem; it becomes a major issue if interest rates begin to grow. Right now money is historically cheap to borrow near 0% if the world economy were to recover before we get our spending problem in line we are screwed.
     
    Last edited: Sep 22, 2012